FRAMEWORK in the Philippines

In the Philippines, many banks has had difficulties encouraging the unbanked to avail of
financial services and providing better service to the underserved because of these challenges:
 Lack of efficient technology infrastructure in rural and remote areas.
 Higher costs for rural banks to reach and service clients in far-flung areas.
 Not having enough money to keep an account;
 Not having the need for a bank/cash account;
 The bank/institution location is too far away;
 They cannot manage an account;
 Service charges are too high and the minimum balance is too high.1

Based on the data from Bangko Sentral ng Pilipinas (BSP), only 14% of households in the
Philippines have deposit accounts. The majority of the remaining 86% unbanked are self-
employed, working for a private household or in other informal occupations. 1 Caraga has an
average family poverty incidence of 30.8%, compared to the national average of 16.5%. Only
about 24% of families in the region have bank deposits. It is estimated that seven out of 10
adults keep their savings at home, and borrowers tap informal sources for funds, such as family,
relatives, or friends (62%); or informal lenders (10%).2

In the Philippines, only three out of 10 people have a bank account. Of the total unbanked, 41%
are in Mindanao

Such low rate of financial inclusion prompted the Philippine government to adopt a National
Strategy for Financial Inclusion in 2015 to bring the underserved or marginalized sectors into the
financial system through technology and other innovations. The strategy complemented the
Philippine central bank’s 2013 Circular 808 guiding all banks and its other institutions on IT risk
management—opening cloud-based technical solutions for the financial sector. Cloud
technology is helping a rural bank reach customers in remote areas more efficiently and at lower
operational cost. Attracting new customers and opening accounts for them using digital
application is not only the most convenient way from the customers’ perspective, but it is also
effective for banks.3

In 2015, Asian Development Bank approved a regional technical assistance to “scale up on

financial inclusion through digital financial services systems in order to serve the underserved
population”, under which the Cantilan Bank Inc. pilot was financed.

Cantilan Bank piloted the adoption of cloud-based core banking technology with the support of
the Asian Development Bank (ADB) through a $150,000 grant. It partnered with cloud service
provider Oradian to migrate from a hardware-based core banking system to a cloud-based
platform to improve its operational efficiency as it targets to service the unbanked. 4 Using the
SaaS model, the project made use of Oradian’s flagship core-banking platform product, Instafin
— an all-in-one software product which enables microfinance institutions, cooperatives, and
rural banks to manage their day-to-day operations more effectively and serve their clients more
efficiently.3

In 2018, Cantilan Bank began to shift from a conventional on-site core banking system to the
cloud, and final migration of all branches was completed in September 2018. With a green light
_________________________________________________________________________________

1
DIGITAL BANKING OVERVIEW IN THE PHILIPPINES, 2017
2
CLOUD-BASED CORE BANKING IN THE PHILIPPINES, 2019
3
Creating a digital path for the unbanked, 2019
to go ahead from the Philippines’ central bank in January 2019, Cantilan switched off its long-
standing older system to become the country’s first bank to fully rely on cloud-based core
banking using an external service provider.

The Cantilan Bank pilot project aims to demonstrate that an investment and focus on technology
— like cloud-based banking — can increase financial inclusion and provide a useful example to
be scaled and replicated.

Outcom
Full migration es
Operational Financial
to cloud-based Efficiency Institutions
core banking Customer Cost
and
Convenience
Output Impact
2

Cantilan Bank’s shift to cloud-based banking has allowed the bank to provide better financial
access to the people and bring in the unbanked into the formal financial system.

With the new system, Cantilan Bank clients can now use their Cantilan cards in ATMs across
the Philippines. Unlike commercial and universal banks, most rural banks are not members of
financial networks. By integrating the core banking platform with a network of ATMs, Cantilan’s
customers now have access to financial services even when they are far from one of Cantilan
Bank’s branches.

Importantly, the Philippine central bank, which provided a “regulatory sandbox environment” to
Cantilan Bank updated its regulations and processes for cloud-based banking—without
compromising data integrity or security—from its learnings from the project. 4 The successful
pilot has significantly encouraged support for regulatory sandboxes to overcome ongoing
reticence toward digital financial solutions as the way forward for reducing financial exclusion.
ADB is supporting this work in the Philippines and is in the process of developing pilot projects
integrating digital financial solutions in Georgia and Papua New Guinea.3

It plans to further relax its regulations to facilitate timely onboarding of qualified financial
institutions. Pending the issuance of a new circular, it has internally instituted streamlined
approach in processing cloud applications. It has cut down its documentary requirements, and
engaged cloud service providers to receive updates on key data information such as reports on
how companies safeguard their customer data. The changes have allowed the central bank to
fast-track the processing of cloud applications. The project built a new digital core banking
system and offers innovative mobile and digital payments and banking solutions which will
better meet the needs of its clients. By being on the cloud, it will also be easier to integrate with
other technology providers.

The project showed that learning a new technology requires significant commitment, including
behavioral change. This implies clarity in internal management and communication procedures,
a need for reorganization and adjustment of business processes, and continuous training.5
Experience in other countries indicates that there is promise for such initiatives in unbanked
regions. In Nigeria for example, after implementing a cloud-based core banking platform,
LARDI, a microfinance finance institution, quadrupled outreach from 30,000 to 115,000
individuals through digital financial services over four years. In the same country, the
Development Exchange Centre, also a microfinance institution, is demonstrating the scalability
of cloud technology compared to systems that require on-premise servers and data centers.
Between 2013 and 2016, the institution expanded its footprint from 79 to 112 branches.5

In the Philippines, the work by Cantilan and its partners has energized government efforts to
expand financial services in underserved areas of the country. Authorities are exploring projects
to support a public private partnership model for agriculture insurance and to pilot solutions to
increase agriculture value chain finance for small entrepreneurs. They are also developing use
cases for increasing access to financial services through the new digital national identification
and to boost capacity of financial service providers, like Cantilan Bank, through a matching
grant technology fund.

As such, Cantilan Bank’s pioneering actions and successful adoption of cloud technology
serves as a case study and model for financial institutions throughout Southeast Asia. This
collaborative pilot project involving Cantilan Bank, one of the Philippine’s leading rural banks,
the ADB, and Oradian is a substantial step toward financial inclusion in Southeast Asia.6

Following CBI, in 2019, Merchants Savings & Loan Association Inc., which operates under the
brand Rizal Microbank (RMB), is the first thrift bank in the Philippines to get Bangko Sentral ng
Pilipinas (BSP) approval to fully shift to a cloud-based core banking system. RMB, which is the
thrift bank of Rizal Commercial Banking Corp. (RCBC), entered into a partnership with
NXTBNK, a Poland-based next-jgen cloud platform provider for modern banks.6

The platform enables RMB to use an efficient automated system in enacting basic banking
transactions, and generating internal and regulatory reports. Having this mechanism would
minimize the time requirement for opening deposit accounts, and applying for microfinance and
small business loans. RMB said this would allow more time to service more clients within and
outside the branch premises. The platform, which is deployed through Amazon Web Services
(AWS), includes an open source application program interface (API) that enables the bank to be
adaptable and compatible for open banking. 6

Envisioned to be at the forefront of digital financial inclusion, RMB’s move to utilize a next-
generation cloud platform in its banking operations provides a more conducive environment to
further serve the unbanked and underserved sector, RMB said. The bank said it recently
launched a “Basic Deposit Account,” or BDA, and enabled more than 3,500 Filipinos to open
their first formal savings account.6

RMB is gearing up its efforts in expanding its business through agency banking program, which
will allow local merchants and entrepreneurs to perform basic banking services, and offer the
bank’s products and services to those residing in far-flung unbanked areas
The knowledge and understanding of “the cloud” and its scope and what regulations apply is still
limited among many, including within financial institutions. User-friendly guidelines or
instructions are needed on how financial institutions can work with emerging financial
technology (fintech) outsourcing models, including issues related to data integrity and security.
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4
Cloud-Based Banking Pilot Project to Improve Financial Inclusion in Philippines, 2017
5
Using Cloud-Based Banking to Improve Financial Access in Remote Areas, 2019
6
Cantilan Bank is first BSP regulated Rural Bank to pioneer cloud-based technology, 2019
7
RCBC thrift bank leads full shift to cloud-based core banking tech, 2019
Audits and reporting structures are still modeled after on-site systems and need to be adapted
to incorporate cloud solutions, which, for example, could include audits of service providers as
well as financial institutions. Overall, there is a need to align compliance structures with new
business models.